(b)the guarantee is necessary for the purpose of meeting regulatory requirements applicable to the other company’s insurance business,

(c)in consequence of having given the guarantee, the CFC is 5required by regulatory requirements applicable to its insurance business to hold more assets than it would otherwise be required to hold, and

(d)during the accounting period, the CFC holds assets solely for the purpose of meeting that requirement for more assets.

(6)10The value of the assets held by the CFC as mentioned in subsection (5)(d) is to be deducted from the CFC’s free assets.

(7)For the purposes of this section the “value” of an asset is the amount which it is reasonable to suppose the CFC would obtain for the transfer of all the CFC’s rights in respect of the asset from a person 15not connected with the CFC.

371FB Qualifying loan relationships

(1)Subsection (2) applies if, during the CFC’s accounting period, the CFC is the ultimate debtor in relation to a qualifying loan relationship (within the meaning of Chapter 9) of another CFC (“the 20creditor CFC”).

(2)E% of the principal outstanding during the CFC’s accounting period on the loan which is the subject of the qualifying loan relationship is to be added to the CFC’s free capital or free assets (as the case may be).

(3)25“E%” is given by the following formula—

where—

EP is the total amount of the profits of the qualifying loan relationship which are exempt, and

30P is the total amount of the profits of the qualifying loan relationship.

(a)references to the profits of the qualifying loan relationship are to the profits of the qualifying loan relationship for 35accounting periods of the creditor CFC which fall wholly or partly in the CFC’s accounting period,

(b)the profits of the qualifying loan relationship for an accounting period of the creditor CFC are to be determined in accordance with Chapter 9,

(c)40the steps in subsection (5) are to be taken to determine the amount of the profits of the qualifying loan relationship for an accounting period of the creditor CFC which are “exempt”, and

(d)the profits of the qualifying loan relationship for an 45accounting period of the creditor CFC which falls only partly in the CFC’s accounting period, and the amount of those profits which are exempt, are to be apportioned between—

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(i)the part of the creditor CFC’s accounting period which falls in the CFC’s accounting period, and

(ii)the part which does not,

with only those profits, and the amount of exempt profits, 5apportioned to the part mentioned in sub-paragraph (i) being included in P or EP (as the case may be).

(a)there is a company (“C”) which has made an election under 25section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments),

(b)during a relevant accounting period of C which begins on or after 1 January 2013, C has a creditor relationship which, applying the assumptions set out in section 18H(3) of CTA 302009 in relation to C for the relevant accounting period, would be a qualifying loan relationship (within the meaning of Chapter 9 of this Part) of C in relation to which the CFC would be the ultimate debtor,

(c)in the application of section 18H(2) of CTA 2009 for the 35relevant accounting period, C makes a claim under Chapter 9 of this Part (as applied by section 18H(2)), and

(d)the relevant accounting period falls wholly or partly in the CFC’s accounting period.

(2)75% of the principal outstanding during the CFC’s accounting 40period on the loan which is the subject of the qualifying loan relationship is to be added to the CFC’s free capital or free assets (as the case may be).

(3)Terms used in this section which are defined in section 18A of CTA 2009 have the meaning given by that section.

371FD45 Exclusion: banking business

(1)The HMRC Commissioners may by regulations provide that, if specified conditions are met, step 3 in section 371FA(1) is not to

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apply in relation to the CFC’s trading finance profits so far as they arise from banking business, or banking business of a specified description, carried on by the CFC.

(2)Regulations under subsection (1) may (in particular) make provision by reference to—

(a)5the territory in which a CFC is resident or any territory in which its banking business is regulated or carried on, or

(b)the regulatory requirements imposed from time to time in any territory in relation to banking business.

371FE Exclusion: insurance business

(1)10The HMRC Commissioners may by regulations provide that, if specified conditions are met, step 3 in section 371FA(1) is not to apply in relation to the CFC’s trading finance profits so far as they arise from insurance business, or insurance business of a specified description, carried on by the CFC.

(2)15In subsection (1) “insurance business” does not include insurance business so far as consisting of the effecting or carrying out of contracts of insurance covered by section 371GA(2) (UK insurance contracts), including the investment of premiums received from such contracts.

(3)20Regulations under subsection (1) may (in particular) make provision by reference to—

(a)the territory in which a CFC is resident or any territory in which its insurance business is regulated or carried on, or

(b)the regulatory requirements imposed from time to time in 25any territory in relation to insurance business.

Chapter 7

The CFC charge gateway: captive insurance business

371GA The basic rule

(1)The CFC’s profits falling within this Chapter for the purposes of step 2 in section 371BB(1) (the CFC charge gateway) are any amounts 30included in its assumed total profits so far as they—

(a)the CFC is resident in an EEA state for the accounting period, 20and

(b)the amount does not arise from the activities of a permanent establishment which the CFC has in a territory which is not an EEA state.

(7)An amount falls within this subsection so far as it derives (directly or 25indirectly) from a contract of insurance if—

(a)the insured has no significant UK non-tax reason for entering into the contract of insurance, or

(b)if the contract of insurance is a contract of reinsurance, the original insured has no significant UK non-tax reason for 30entering into the original contract of insurance.

(8)“UK non-tax reason” means a reason other than one relating to a liability, or potential liability, of any person to tax or duty imposed under the law of the United Kingdom.

(8)In this section “original contract of insurance”, in relation to a 35contract of reinsurance which is one in a chain of contracts of reinsurance, means the original contract of insurance reinsured by the first contract in the chain; and in subsection (7)(b) the reference to the original insured is to be read accordingly.

Chapter 8

The CFC charge gateway: solo consolidation

371HA40 The basic rule

(1)The CFC’s profits falling within this Chapter for the purposes of step 2 in section 371BB(1) (the CFC charge gateway) are any amounts included in its assumed total profits which are not also included in the CFC’s relevant profits amount.

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(2)The CFC’s “relevant profits amount” is what the relevant profits amount would be for the purposes of Chapter 3A of Part 2 of CTA 2009 (see section 18A(6) of that Act) in relation to the CFC were that amount to be determined as if—

(a)5the CFC were a permanent establishment in a territory outside the United Kingdom of the UK resident company mentioned in section 371CG(2)(b) or the UK resident bank mentioned in section 371CG(3), and

(b)the CFC’s accounting period were a relevant accounting 10period of that UK resident company or UK resident bank for the purposes of that Chapter.

Chapter 9

Exemptions for profits from qualifying loan relationships

371IA The basic rule

(1)This Chapter applies if—

(a)15apart from this Chapter, Chapter 5 (non-trading finance profits) would apply for a CFC’s accounting period,

(2)A chargeable company (“company C”) in relation to the accounting period may make a claim to an officer of Revenue and Customs for step 2 in section 371BB(1) (the CFC charge gateway) to be taken, in the case of company C only, subject to this Chapter.

(3)25If company C makes a claim, in the case of company C only, the CFC’s qualifying loan relationship profits pass through the CFC charge gateway so far as (and only so far as) they are not exempt under this Chapter.

(9)In this Chapter references to the CFC’s non-trading finance profits 40are to those profits excluding any profits—

(a)falling within section 371CB(3) or (4) or Chapter 8 (solo consolidation), or

(b)arising from a relevant finance lease.

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(10)In this Chapter—

(a)“loan relationship” has the meaning given by section 302(1) of CTA 2009 (and does not include anything which, although not falling within section 302(1), is treated for any purpose as 5if it were a loan relationship), and

(b)other terms used which are defined in Part 5 of CTA 2009 are to be read accordingly.

(11)See section 371CB(8) which deals with the interaction between this Chapter and section 371CB and Chapter 5 in the case of a chargeable 10company which makes a claim under this Chapter.

371IB Loans funded out of qualifying resources

(1)This section applies to a qualifying loan relationship if company C’s claim under this Chapter states that this section is to apply to the qualifying loan relationship.

(2)15X% of the profits of the qualifying loan relationship are exempt if company C’s claim establishes—

(a)that, at all times during the relevant period, at least X% of the principal outstanding on the relevant loan (as that may vary from time to time during the relevant period) is funded by 20the CFC wholly out of qualifying resources, and

(b)that the ultimate debtor in relation to the qualifying loan relationship (see section 371IG(2) to (7)) is resident at all times during the relevant period in one territory only and that its territory of residence does not change at any time during the 25relevant period.

(3)“X%” is the percentage specified in company C’s claim for the purposes of this section in relation to the qualifying loan relationship (which may be 100%).

(4)“The relevant period” means—

(a)30the accounting period, or

(b)if for any part of the accounting period no principal is outstanding on the relevant loan, the part of the accounting period during which there is principal outstanding.

(5)“The relevant loan” means the loan which is the subject of the 35qualifying loan relationship.

(6)“Qualifying resources” means—

(a)profits of the CFC’s business so far as it consists of the making of loans to relevant members of the CFC group which are used solely for the purposes of the business of the CFC 40group in the relevant territory, or

(b)funds or other assets received by the CFC in relation to shares held by the CFC in, or issued by the CFC to, members of the CFC group.

(7)Funds or other assets received by the CFC fall within subsection 45(6)(b) only so far as they derive (directly or indirectly) from—

(a)profits of the business of the CFC group in the relevant territory,

(i)the shares are shares in a member of the CFC group 5(“the parent member”) which is not the 75% subsidiary of any company,

(ii)the shares are ordinary shares which are not redeemable, and

(iii)the shares are issued to persons who are not members 10of the CFC group.

(8)Subsection (9) applies if the qualifying loan relationship is made under, or is otherwise connected (directly or indirectly) with, an arrangement under which a member of the CFC group incurs a debt in the United Kingdom to—

(a)15a non-UK resident person, or

(b)a UK resident person who is not a member of the CFC group.

(9)It is to be assumed for the purposes of subsection (2) that, at all times during the relevant period, the amount of funds or other assets—

(a)out of which the principal outstanding on the relevant loan is 20funded by the CFC, and

(a)subject to subsections (11) and (12), “the CFC group”, as at 25any time, means the CFC taken together with the companies with which it is connected at that time,

(b)a member of the CFC group is “relevant” if it is resident in the relevant territory and no other territory,

(c)“the relevant territory” means the territory of residence of the 30ultimate debtor mentioned in subsection (2)(b),

(d)references to the business of the CFC group in the relevant territory do not include the making of loans to persons resident outside the relevant territory,

(e)references to the profits of the business of the CFC group in 35the relevant territory do not include—

(i)profits arising (directly or indirectly) from funds or other assets received by relevant members of the CFC group in relation to shares held by them in members of the CFC group which are not relevant members, or

(ii)40so far as not covered by sub-paragraph (i), profits arising (directly or indirectly) from the business of the CFC group in any territory outside the relevant territory, and

(f)section 931U of CTA 2009 (definitions of “ordinary share” 45and “redeemable”) applies as it applies for the purposes of Part 9A of CTA 2009 (company distributions).

(11)If the CFC is controlled by one UK resident company only (“the controller”), in relation to any time before the CFC came to be controlled by the controller, except in subsection (6), references to the

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CFC group include references to the controller taken together with any companies with which it is connected at that time.

(12)If the CFC is controlled by two or more UK resident companies which are all connected with each other (“the controllers”), in relation to any time—

(a)5before which the CFC came to be controlled by the controllers, and

(b)at which the controllers (or those of the controllers which exist at that time) are all connected with each other,

except in subsection (6), references to the CFC group include 10references to the controllers (or those of the controllers which exist) taken together with any other companies with which they are all connected at that time.

371IC What is the “qualifying value” of “relevant pre-acquisition funds or other assets”?

(a)a member of the CFC group acquires shares in a company (“the target company”) from persons who are not members of that group (“the unconnected persons”),

(b)20in consideration for the acquisition of the shares, a member of the CFC group (“the parent member”) which is not the 51% subsidiary of any company issues shares to the unconnected persons, and

(c)the value of the consideration given for the acquisition of the 25shares by the parent member and any other members of the CFC group represents wholly or partly the value or a part of the value of any funds or other assets held by the target company.

(3)Those funds or other assets are “relevant pre-acquisition funds or 30other assets” and, subject to what follows, their value or the part of their value represented by the value of the consideration is their “qualifying value”.

(4)The qualifying value is to be reduced by Y% if one or both of the following paragraphs applies—

(a)35the issue of shares by the parent member to the unconnected persons represents only part of the consideration given for the acquisition of the shares in the target company;

(b)in connection with the acquisition of the shares in the target company, an extraordinary distribution is made to persons 40holding shares in the parent member.

(5)“Y%” is given by the following formula—

where—

A is the value of the consideration which is in the form of the 45issue of shares by the parent member to the unconnected persons, and

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B is, as the case may be—

(a)

the value of the consideration which is not in the form of the issue of shares by the parent member to the unconnected persons,

371ID The 75% exemption

(1)This section applies to a qualifying loan relationship if section 371IBdoes not apply to the qualifying loan relationship.

(2)1075% of the profits of the qualifying loan relationship are exempt.

371IE Matched interest

(1)This section applies if—

(a)there are profits of qualifying loan relationships (“the leftover profits”) which are not exempt after either section 371IB or 15section 371ID has been applied to each qualifying loan relationship,

(b)the relevant corporation tax accounting period (as defined in section 371BC(3)) in relation to company C is a relevant accounting period of company C in relation to a period of 20account of the worldwide group,

(c)the CFC’s accounting period ends in that period of account, and

(d)apart from this section—

(i)the charging of a sum on company C at step 5 in 25section 371BC(1) would cause section 314A (financing income amounts of chargeable companies) to apply in the case of company C, and

(2)30All the leftover profits are exempt if, ignoring the relevant amounts, the tested income amount for the period of account is equal to or exceeds the tested expense amount for that period.

(3)Otherwise, Z% of the leftover profits are exempt if the relevant amounts would cause the tested income amount for the period of 35account to exceed the tested expense amount for that period.

(4)“Z%” is given by the following formula—

where—

E is the amount of the excess which would be caused by the 40relevant amounts,

I is the amount of any increase in the tested income amount which would be caused by the relevant amounts, and

R is the amount of any reduction in the tested expense amount which would be caused by the relevant amounts.

(5)45“The relevant amounts” are—

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(a)the financing income amount for the period of account which company C would have as a result of the application of section 314A as mentioned in subsection (1)(d) so far as it would include the leftover profits, and

(b)5any other financing income amounts for the period of account corresponding to the amount given by paragraph (a)which members of the worldwide group who make claims under this Chapter in relation to any CFC would have.

(6)For the purposes of subsection (5)(a) assume that company C’s 10financing income amount would include P% of the leftover profits.

(8)Subject to what follows, terms used in this section which are defined in Part 7 (tax treatment of financing costs and income) have the same 15meaning as they have in Part 7.

(9)In subsections (2) to (4) references to the tested income amount or the tested expense amount are to that amount determined without regard to any debits, credits or other amounts arising from UKbanking business or insurance business.

(10)20But subsection (9) does not apply for the purpose of determining any financing income amount under section 314A or affect the way in which any such amount is to be taken into account in determining the tested income amount or the tested expense amount.

(11)“UK banking business or insurance business” means banking 25business or insurance business carried on by—

(a)a UK resident company, or

(b)a non-UK resident company acting through a UK permanent establishment.

(12)Part 7 has effect for the purposes of this section with the following 30modifications.

(13)In section 261 (application of Part 7) the following are to be omitted—